ACCT6003 Financial Statement Analysis
Week 11 Workshop on valuation and forecasting For the Week 11 assignment you are required to implement the residual operating income valuation model (ReOI) for Woolworths Ltd using the Excel spreadsheet that was provided on Canvas in Week 11. This spreadsheet contains the reformulated statements and profitability analysis of Woolworths during 2008-2017. Assume that right now you are at financial year end 30 June 2008, and that the provided reformulated statements for Woolworths during 2009-2017 represent analysts’ forecasts (that are in fact perfect forecasts in this case). Assume that Woolworths has a fixed cost of equity capital of 8%. Assume also a cost of debt before tax at 5.85% and a marginal tax rate of 30%. We also know that Woolworths’ price as at 30 June 2008 was $24.95 per share.
Required: (1) You are required to calculate the intrinsic price for Woolworths as at end of 30 June 2008 using the ReOI valuation model. Report the ReOI valuation exercise in a separate worktab in the same Excel workbook. Name this new worktab as ‘ReOI’ and submit the Excel spreadsheet for marking. (2) In a separate Word or PDF report, give three (3) reasons that explain why the intrinsic price estimated by the ReOI model is different than the actual price even though we have perfect forecasts. The maximum words is 400.